This all came to a theatrical climax yesterday when Goldman executives appeared before Senator Carl Levin’s Permanent Subcommittee on Investigations for their ritualized public flogging.

It was an action-packed and profane affair, as parliamentary proceedings go. You can catch the video here.

The fundamental substantive issue underlying the hearing (to the extent that it needed one) and the SEC complaint against Goldman (to the extent that it needs one) is whether there’s anything wrong with an investment house taking positions on opposite sides of the same financial instrument.

Levin (a former Michigan assistant AG) went round-and-round with Blankfein on this point yesterday, with Levin repeatedly asking some version of “isn’t there anything wrong with that?”

Blankfein once again unsheathed his secret weapon and simply said, “no, there’s not.”

The thing is that Blankfein is of course right.

Ignoring some interesting but ultimately pedantic legal questions raised in the SEC complaint, there’s really nothing wrong with Goldman taking (and thus making) bets on both sides of an instrument.

What Levin is doing is the functional equivalent of lining up executives from Harrah’s and accusing them of taking bets on both sides of the Super Bowl.

Of course they do – that’s the whole point.

Don’t think for a minute that Levin doesn’t understand this, but there’s an important point to be made none the less.

The difference between Goldman and Harrah’s is that the people from Harrah’s don’t run around telling everyone about how much “value” they are creating or claim that they shouldn’t be regulated because they are providing an important public service. If they did, people would laugh at them.

But for some reason otherwise seemingly sane people repeatedly buy it when Goldman and company run the same line.

Should Goldman be allowed to take side bets on whether people will pay off their mortgages?

I don’t see why not, but it should be regulated like greyhound racing or jai alai, with which it has much in common.